Coincident Heir • Executrix • Survivg Cosigner of Deceased's Bank Acct = Any Conflct?

Factual Questions
1

I don’t know anything about this subject, so I probably can’t state the question right. Only part of the deceased’s assets, excluding the bank account, are in probate. But, in reference to an actual current situation which I would describe as above, is there any legal conflict in general? The instance referenced should not result in any hassle or inequity, but it would seem to me that one could wonder about how the bank account might be managed prior to completion of probate.

Ray (and why can’t one put spaces on both sides of n-dashes/hyphens in the ‘Subject’ slot?)

2

Um, what is the actual current situation which you would describe “as above”?

The Topic: line for this thread is awfully vague and ambiguous.

3

Consult a lawyer.

Oh I forgot – you hate lawyers.

Read a book

-Melin

4

Not sure if my experiences can help you, but I’ll try. When my mom passed away, my brother and I were the only heirs. My brother was a co-executor with my uncle, and I was listed on one of mom’s savings accounts. All the money in it was mom’s, so I only used part of it to pay off the estate bills, since getting the executors to do their paperwork took months. I kept all the records and receipts.

Unfortunately, my brother eventually cleaned out the other bank accounts. But since I did have a copy of those bank statements, I was able to get things straightened out after taking it to court. It just took about 3 years.

My thoughts are that it’s not a conflict as long as absolutely everything is done in the open, with copies of bank statements and receipts available. Otherwise, you can have a real mess. Then you have to decide if the money is worth the hassle. If there is a problem, try to skip the lawyers, and go straight to the cops or judge. Best wishes.

5

Thanks, Mike. It’ll all be well documented. You’ll probably be assaulted by this local school of sharks for practicing law without a license. Just bust 'em in the nose with a power supply – preferably a high-voltage one.

Ray

6

Gosh, Nano, sounds like you need to talk to a lawyer. And preferably one who wouldn’t tell you to kiss her rosy red ass.

So that lets me right out. Good luck!

Jodi

Fiat Justitia

7

Having acted as an executor twice and an administrator once, and with the proviso that I am NOT a lawyer…

Anyone can be named as the estate executor, whether or not they are an heir. A lot of people choose lawyers as executors, and the lawyers don’t mind because they get a fair fee from the estate (a percentage that varies between jurisdictions) but there is no need for an executor to be legally trained.

A joint account does not become a part of the deceased’s estate. Total ownership of the account automatically passes to the surviving partner, and it does not go through probate. The same applies to jointly-held property, safety-deposit boxes, vehicles, and so on. In fact, if you trust your spouse/heirs, you can make them joint owners of pretty well everything, and reduce your estate value (and the taxes/fees payable) to almost nothing.

So in brief, being heir and executor is not a conflict, and the joint account is not a part of the estate, so no conflict there either.

Aside from the above, for anyone reading this post thinking of making or updating a will: you should also consider an enduring (or durable) power of attorney. If you are disabled, temporarily or permanently, the named person(s) can act on your behalf while you are alive, signing cheques, paying bills, and generally looking after business on your behalf. Again, this has to be someone you TRUST, because the POA can be used at any time to sell your house out from under you or cash out your investment account, but it will allow your son/daughter/spouse to look after you should you be hospitalized, without having to dip into their own resources to pay for doctors, ambulances and so forth.

I know, it’s all gruesome and something we’d rather not think about most of the time, but if you die will-less (“Intestate”) the problems can really multiply. So grit your teeth, and get it done.

8

Gosh, SavageNarce, it sounds like if you know you’re about to die, you can make your heirs joint owners of ALL your property, so that when you die they become complete owners and you won’t have to go through any probate or pay any estate taxes at all.

Is there some estate/gift tax law that kicks in when you make someone a joint owner of your property?

9

Avoid probate? Yes. Avoid taxes? No. There is a unified estate and gift tax which is based upon all property that you transfer, whether by gift during your life or by bequest when you die. However, there are many transfers that are exempt, such as transfers to spouses or gifts of less than $10,000 per year per person.

10

Yikes! Not only that, DON’T DO IT! Assets which have appreciated in value over the lifetime of the decedent take on a new basis at death, so that the heirs will not pay a capital gains tax on that appreciation when they sell. If, however, the decedent makes a gift during his lifetime of the asset, the asset goes to the recipient with the old basis, not a stepped-up one, so that when the recipient sells he pays a significant capital gains tax.

Example: Mom bought a Picasso when he was still a nobody. She paid $1000 for it. The thing is now worth $500,000. If Mom sells it, she pays capital gains tax on $499,000. If Mom gives the painting to me while she is still alive, I have the same $1000 basis she has, and so if I sell it I will pay capital gainst tax on $499,000. If Mom leaves it to me in her will, however, then it acquires a new basis, which is the value on the date of her death (or alternate valuation date). Then if I sell it for $500,000, I don’t pay any capital gains tax at all.

Now, the $500,000 value of the painting WILL have to be included in Mom’s estate for purposes of calculating the inheritance tax. The last time I posted a figure on this board for how much can pass tax-free I got a polite correction from Manny, so I’m only gonna estimate here that, in the year 2000, it’s between $600,000 and $700,000 that passes tax free (I think it’s $660,000. Manny?).

-Melin

11

Melin, I think the idea was to make the person a co-owner, not to give them everything as a gift. That might avoid the gift tax.
btw, did anyone notice a real hostile trend from the (presumably) lawyers? If you don’t like Nano, then don’t read his posts. Don’t come into the thread just to flame him. Sheesh. Try setting a good example.

12

First, let me point out that the jurisdiction in which I live (Nova Scotia, Canada) has neither inheritance tax nor gift tax. Your results may vary! However, we do have a “probate fee” that is levied on the value of the estate. Joint ownership of most assets will virtually eliminate such a fee, or any taxes that are similarly based.

Also, when my father died, I was executor of his estate. The house, bank account, car, and similar major assets were jointly owned with my mother, so did not come into the estate. As executor, I was entitled (by law) to a fee of 5% of the estate value, which would have come to something around $15,000. However, our lawyer (yes, we used a lawyer to advise us on the legal niceties of the estate) said that if I accepted the fee, it was taxable as income, but if I waived the fee and my mother then gave me a gift of the fee amount, no tax would be payable.

Every jurisdiction is going to have different rules and fiddles that will apply; you should definitely consult a lawyer who specializes in estate matters in your area, especially if you have managed to accumulate a fair amount of assets.

13

Yes and no. This happened to a friend of mine, who was diagnosed with a fatal condition, giving him 6 months to live. Before his death, and with the cooperation of his lawyer, he transferred title of virtually everything to his wife and children. Some taxes and fees were payable (e.g. $25 to transfer ownership of a motor vehicle permit, $50 to change property ownership and property tax registration, etc.) but these were minor, and easy to accommodate as long as he was alive. You can’t avoid probate altogether; it’s a legal process that allows possible creditors to make themselves known to the estate for settlement of their debts, for example. But you can minimize the complexity of the estate, and any fees or taxes based solely on estate value. By the time my friend died, his estate was worth about $2000 in “personal property”, and probate fees were minimal. As others have pointed out, this approach may not work in all jurisdictions, where gift taxes might take over – but do gift taxes apply to joint holdings (as opposed to straight transfers) ?

14

This is a dangerous practice that can cause you more harm than goof if implemented incorrectly.

If you make somebody a joint owner, or gift them an asset they retain the original cost basis and do not get the benefit of the DOD step-up.

15

I feel like the dog in the Far Side cartoon – all she hears of her owner’s commands is “Blah, blah, blah, Fluffy” :slight_smile:

I have no idea what the heck you are saying here. What in the world is a “DOD Step-up” and what is the “original cost basis” that I should be concerned about it?

Seriously, can you post a more detailed explanation of this message (preferably phrased for the layman)?

16

I’ll try. Let’s say you have 100 shares of stock in the Acme Manufacturing Company, which you bought 20 years ago for $2 per share. Because of extraordinary growth in sales by the New Mexico division, that stock now trades at $50 per share. If you sell the stock today, you recognize taxable gain. In other words, you will pay income tax on the fifference between your basis of $200 and the sale price of $5000.

If you give the stock to your girlfriend (because you are 80 years old, and she’s a vigorous 25, she takes your basis as it stands. If she sells the stock, she pays the same income tax.

On the other hand, if you leave it to her in your will, the basis is stepped-up to its current value. If she then sells, there is no gain, and therefore no tax. As Melin said, this is a powerful incentive not to make transfers before death of assets that have appreciated (increased in value) while you owned them.

On the other hand, if the asset has not significantly appreciated, it makes sense to make the pre death transfer, because it could reduce your estate and gift tax.

(As I said before, gifts are taxable, but there is a $10K per year per person excemption. That is why you will see wealthy grandparents make annual $10K gifts to their granchildren.)

17

I think we are having a Canadian/United States jurisdiction problem here.

At least as posted above, Nova Scotia apparently does things differently from every State in the Union and the U.S. federal government in terms of taxation upon death. The information which I gave, and which Random gave, is good in the United States. It apparently is not good in Canada.

In the United States you WILL have more tax problems if you make someone a co-owner of an appreciated asset rather than simply leaving it to them after your death. They will, too. You WILL have to figure a gift tax on it (unless it is less than $10,000 in value), and they will have to pay capital gains tax when they sell it based on the basis which YOU had in it, rather than it acquiring a new basis upon your death. This is considered a SIGNIFICANT tax consideration in the U.S.

Nanobyte comes into legal and medical threads and posts contemptuous trash for legal and medical professionals. He then seeks some free legal advice on this board. He deserves whatever flaming he gets.

-Melin

Siamese attack puppet – California

Still neglecting and overprotecting my children

18

These are not waters you want to navigate on your own.

Let’s say you buy a stock for $1,000 (your original cost basis,) ten years later let’s say it’s worth $50,000 (an appreciated asset.)

If you give that stock to somebody else or title it jointly, they maintain your cost basis when you die (there’s an exception or two here that I won’t get into.) If they sell it, they pay taxes on $49,000 worth of gains. In layman’s terms this is called “Sucking the big one.”

If you die still owning that asset, your heirs get a stepped up cost basis. This means their new basis is the cost of the stock on your DOD (date of death.) If it’s worth $50,000 that day, they can sell it and not pay any taxes. In laymen’s terms this is called “Way cool!”

If you title the asset jointly you will probably screw up this “way cool” arrangement , unless you are married and the asset is joint with your spouse. Even then there are ways to screw this up.

So you want to make sure you don’t give away things that have gone up in value. It’s generally better to die with them.
Does this mean you can give cash? Yes, up to $10,000 a year to each donee without tax consequences, as many donees as you like.

You also have to worry about gifting in contemplation of death. If the IRS decides you have done this they will disqualify the gift, and taxes may be subject to “recapture.” Recapture is like this: If you escape from a prison where you have been tortured, what do you want to avoid at all costs?

You have two primary estate planning tools if you are married. These are the “Unlimited spousal exemption” (you can give your spouse whatever you want without consequenes,) and the unified credit exemption (this is the amount you can give during your life or at death without federal tax, not counting the $10,000 a year) I think the unified credit is $650,000 now, but I would have to double check. Any assets that you own above this number are taxed at death according to Federal Estate taxes.

Assets in IRA accounts can get double taxed at death if you’re above this number.

There are excellent strategies using trusts, gifting and sound estate planning with the goal of minimizing estate taxes and passing on the largest possible portion of your estate to your heirs. Attempting to use them without fully understanding is playing with a loaded gun.

If you attempt to utilize these tools by yourself you will almost assuredly screw up, and Uncle Sam will feast on your corpse.

Estate planning can get immensely complicated very fast.

Get a lawyer or a qualified Financial planner to assist you.

By the way you are not trying to avoid probate. Nothing wrong with probate at all. It is merely the process of transferring your estate. What you are trying to avoid is estate taxes.

19

Melin, is there gift tax on a sale? As in, if you transfered ownership for a negligible ammount, or made someone a co-owner, would they have to pay gift tax? (And yes, I realize you’re a US citizen and this isn’t directly applicable… I’m just curious.)

And wrt to the Nanobytething, I realize he wouldn’t have pissed so many people off unless he was an asshole every now and then, I’m just saying that seeing lawyers pop in and rip him a new one is going to influence other people to dislike lawyers, creating another Nanobyte. Letting him dig his own hole is much more effective because everything rude is shown to be his doing and doesn’t make you (collectively) look bad.

I did post the ‘btw’ in a message to you, but it was more to the other lawyer who popped in, said “Hah, find a lawyer now jerkface!” (basically) and then left. You were actually helpful and answered the question, unlike the other person.

20

Scylla posted:

Hmmm.

So let’s say my mom bought stock for $10K in 1990. The cost basis remains $10K, so she can give it to me all at once (it’s just below gift tax threshold). She does.

She dies this year. The stock is now worth $20K. If I sell now, I pay capital gains tax on $10K.

OTOH, if my mom kept the stock & I were designated to inherit all of it, my cash inheritance is reduced by the amount of estate tax (if estate tax applies) on the $20K basis the stock currently holds.

I think that IF estate taxes apply, that the estate tax on the $20K stock would be more than the capital gains tax on the $10K increase in cash basis. Is this right? Isn’t this the whole idea of encouraging wealthy people to give their assets away to their kids while they’re still living?

btw - in answer to the OP, isn’t this pretty much the norm for a middle-class widow or widower?

Sue from El Paso
Siamese Attack Puppet - Texas

Experience is what you get when you didn’t get what you wanted.